Provisional Tax: Practical Guidance to Avoid Penalties and Interest

---

Provisional Tax: Practical Guidance to Avoid Penalties and Interest

• 14 January 2026
• Individuals Tax
• Yolisa Dyasi

If income tax were a movie genre, provisional tax would be a psychological thriller: misunderstood, mildly intimidating, and often discovered far too late.

Mention “provisional tax” and many taxpayers instinctively respond with, “That doesn’t apply to me.” Until it very much does.

Provisional tax is not a separate tax. It is not a penalty. It is not SARS being creative. It is simply a method of paying normal income tax in advance, regulated by the Fourth Schedule to the Income Tax Act—and it applies far more broadly than most people realise.

If you earn income that is not fully taxed through PAYE, provisional tax is very likely part of your tax life. And if it is not managed properly, it can quietly turn into interest, penalties, and very uncomfortable assessments.

What is provisional tax, actually?

At its core, provisional tax is SARS’s way of managing cash flow—and yours.

The Fourth Schedule to the Income Tax Act requires certain taxpayers to estimate their taxable income during the year and make advance payments to SARS, rather than settling everything in one large, painful amount after assessment.

Legally speaking, a provisional taxpayer is defined in paragraph 1 of the Fourth Schedule. In plain language, this includes:

• Individuals who earn income other than a salary (for example, rental income, consulting fees, or business income)
• Directors of private companies who receive remuneration not subject to PAYE
• Sole proprietors, freelancers, and independent contractors
• Trusts (with limited exceptions)
• Companies (almost always)

Importantly, you can still be employed and be a provisional taxpayer. Having a payslip does not automatically exclude you.

How provisional tax works

Provisional tax operates through two mandatory payments during the year of assessment, with a possible third “top-up” payment after year-end:

• First provisional payment: By the end of the sixth month of the year of assessment
• Second provisional payment: By the end of the year of assessment
• Third (voluntary) payment:
  • Within seven months after year-end for February year-ends
  • Within six months for any other year-end

These payments are based on estimates of taxable income—and this is where things get interesting.

Estimates, penalties, and the fine art of being “reasonable”

The law does not expect taxpayers to be psychic—but it does expect them to be reasonable. Paragraph 19 of the Fourth Schedule introduces one of the most misunderstood concepts in tax: the “reasonable” estimate.

SARS does not require perfection, but it does penalise carelessness.

If your second provisional tax estimate is less than:

• 90% of your actual taxable income for the year, or
• 80% of your taxable income from the previous year of assessment (where applicable),

you may face underestimation penalties, currently levied at 20% of the shortfall, plus interest.

This is not punitive in theory, but it is corrective. SARS is discouraging taxpayers from deliberately underestimating income simply to defer tax.

Example: The side-hustle surprise

Thandi is a full-time marketing manager earning a salary with PAYE deducted. On the side, she does freelance social media work and earns R180,000 during the year. Because her salary is taxed, she assumes SARS “will sort it out” at assessment time.

What actually happens?

Her freelance income was never taxed during the year. At assessment, she receives a significant additional tax bill—plus interest—because no provisional payments were made. Had Thandi estimated and paid her provisional tax liability, the financial shock would have been far smaller.

Provisional tax in the real world

In practice, provisional tax sits at the intersection of law, forecasting, and human behaviour. Many taxpayers struggle not because the rules are complex, but because income is unpredictable.

Example: The optimistic entrepreneur

Sipho runs a small IT consultancy. Year one was modest. Year two exploded. When submitting his second provisional return (IRP6), Sipho uses last year’s taxable income as a benchmark, assuming growth will stabilise.

It doesn’t.

By the time his income tax return is assessed, his taxable income is far higher than estimated. The result is underestimation penalties and interest, despite good faith. This is where professional judgement becomes critical. The Fourth Schedule allows estimates to be revised, and SARS expects taxpayers to respond to known changes in circumstances. A booming business is not a surprise—it is a signal.

On the opposite end of the spectrum is Ayesha, who overestimates aggressively “to be safe.” She pays far more provisional tax than required and waits months for a refund after assessment. Legally permissible? Sometimes. Financially efficient? Not always.

Good provisional tax planning balances compliance with cash-flow management. The Act allows flexibility, but it rewards informed decisions.

Why provisional tax deserves more attention

Provisional tax is not merely a filing obligation. When handled properly, it is a strategic tax tool; when ignored, it becomes a silent liability.

It affects cash-flow planning, risk management, penalty exposure, and overall compliance strategy. The Fourth Schedule is deceptively short, but its consequences are not.

Most provisional tax problems do not arise because taxpayers are dishonest. They arise because taxpayers do not realise they are provisional taxpayers, misunderstand what “reasonable” means, or treat estimates as guesses rather than informed projections.

A well-structured discussion—supported by real examples, SARS interpretation notes, and practical estimation techniques—can fundamentally change how provisional tax is experienced. Because once provisional tax makes sense, it stops being scary. And when it stops being scary, it stops being expensive.

These practical issues will be explored in more detail in the upcoming Provisional Tax webinar, which focuses on real-world application, risk management, and defensible estimation techniques. Click here to view the event details and book your place.

0 COMMENTS

LEAVE A COMMENT